Commercial property lease structures

Commercial property lease structures

Property Insights

2013-06-26

When it comes to new commercial premises for your business, your broker will present you with a shortlist of potential site options after a detailed space assessment. Once you have this shortlist, you’ll need to evaluate each option – preferably with your broker - based on the proposed lease terms for each. In most cases, commercial property leases will comprise the following points that you’ll need to analyse carefully: For each issue above, ask yourself the following questions: Commercial Property Lease Term
  • How long do you want to lease a particular site for?
  • Would the proposed commercial or industrial site be considered strategic, in which case a longer lease would be optimal?
  • Are you expanding quickly and only need a short-term solution?
Rental Rates
  • Can you afford the monthly rental costs for each property? To get an idea of this, request an itemised list of all rental, operating expenses and contributions that may be levied over the lease term – and whether they’re quoted as net or gross figures.
  • Are the annual escalations on the commercial property affordable?
  • Are the quoted rental and escalation rates market related?
Deposit and surety requirements
  • Can you afford the costs or would they be an excessive burden to your business?
  • What are the repercussions if your business defaults on payments?
  • At what point would your deposit be returned or bank guarantee expire?
  • What are the terms for reinstatement of the commercial premises?
Renewal and purchase options
  • Do you have the right to sub-let the commercial premises?
  • If so, do you have written permission from the landlord?
  • Can you assign your lease if you sell your business to a third party?
Repairs and maintenance
  • Who is responsible for the repairs and maintenance of the commercial property over the lease term?
  • What are the landlord’s responsibilities in terms of fixtures and fittings as well as receiving all installations in good working order?
  • Will the landlord require you to pay for the structural insurance for the safeguarding of the property, buildings, infrastructure and all installations such as air conditioners and generators?
  • What are the implications should the entire commercial premises be destroyed?
Operations 
  • Is the landlord aware of your business operations and whether these activities may be in contravention with local municipal regulations for the property?
  • Is the commercial property zoned for your daily operating activities?
  • Does the parking allocation support your requirement?
Option to purchase
  • Does the lease include an option to renew or an option to purchase?
  • At what point do these options have to be exercised?
Signage
  • Will the landlord permit signage on the commercial property?
  • What are the municipal restrictions for signage in the area?
In your search for a commercial space, remember to plan ahead and give yourself enough time to investigate, negotiate and ultimately relocate. Stay flexible unless you have a very specific requirement in terms of configuration or location. Above all, keep your options open as much as possible. Contact Simon for further assistance with any commercial property requirements on 083 261 2861.  

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